Page 45 - DEBKVOL-1

Chapter 2 Accounting for Partnership Firms—Fundamentals 2.17
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Solution: PROFIT AND LOSS APPROPRIATION ACCOUNT
Dr. for the year ended 31st March, 2018 Cr.
Particulars ` Particulars `
To Interest on Capital A/cs: By Profit and Loss A/c:
X (` 4,80,000 × 12/100) 57,600 Net Profit 11,06,400
Y (` 3,60,000 × 12/100) 43,200 1,00,800 Less: Interest on X’s Loan 3,600 11,02,800
To Partners’ Salary: (` 1,20,000 × 6/12 × 6/100)
X (` 12,000 × 12) 1,44,000 (Note 1)
Y (` 54,000 × 4) 2,16,000 3,60,000 By Interest on Drawings A/cs: (Note 2)
To X’s Commission 42,000 X (` 2,40,000 × 10/100 × 6/12) 12,000
(2% of ` 21,00,000) Y (` 3,00,000 × 10/100 × 6/12) 15,000 27,000
To General Reserve (Note 3) 1,20,000
To Profit transferred to:
X’s Capital A/c 2,83,500
Y’s Capital A/c 2,23,500 5,07,000*
11,29,800 11,29,800
*Division of Profit:

Partners Up to ` 4,20,000 ` 87,000 (above ` 4,20,000) Total
X ` 2,40,000 ` 43,500 ` 2,83,500
Y ` 1,80,000 ` 43,500 ` 2,23,500
Total ` 4,20,000 ` 87,000 ` 5,07,000

Dr. PARTNERS’ CAPITAL ACCOUNTS Cr.

Particulars X Y Particulars X Y
` ` ` `

To Drawings A/c 2,40,000 3,00,000 By Bank A/c 4,80,000 3,60,000
To Interest on Drawings A/c 12,000 15,000 By Interest on Capital A/c 57,600 43,200
To Balance c/d 7,55,100 5,27,700 By Partners’ Salary A/c 1,44,000 2,16,000
By X’s Commission A/c 42,000 ...
By Profit and Loss Appro. A/c 2,83,500 2,23,500
(Profit)
10,07,100 8,42,700 10,07,100 8,42,700
Notes:
1. As per The Indian Partnership Act, 1932, Interest on loan is to be allowed @ 6% p.a.
2. Interest on Drawings has been calculated for an average period of 6 months as the date of drawings is
not given.
3. Transfer to Reserve = 20% of (` 11,02,800 – ` 1,00,800 – ` 3,60,000 – ` 42,000) = ` 1,20,000.
Illustration 12 (Distribution of Profit in wrong Profit-Sharing Ratio).

X, Y and Z shared the profit of ` 7,50,000 in the ratio of 2 : 2 : 1 without providing for interest
on Y’s Loan. Y granted a loan of ` 5,00,000 in the beginning of accounting year, whereas the
Partnership Deed is silent on interest on loan and the profit-sharing ratio. Give necessary
adjustment entry.